A Model of Regulation in the Housing Market

Pascal Raess and Thomas von Ungern-Sternberg

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: This paper develops a theoretical model to study the effects of regulation on the housing market. Our model emphasises the following specific features of the housing market : product heterogeneity plays an important role, search costs are high, switching (moving) costs are substantial, and the possibilities to price discriminate are important. We show that in an unregulated housing market rents will increase at the time of renegotiation as a result of the "hold-up" problem. A regulation which limits the owners' possibilities to increase his rents for a certain number of years leads to lower equilibrium rents and higher social welfare. Our model strongly suggests that a policy which consists of indexing rents may be socially preferable to a simple laissez-faire solution.

Keywords: housing; monopolistic competition; regulation; search; hold-up (search for similar items in EconPapers)
JEL-codes: D83 L59 (search for similar items in EconPapers)
Pages: 38 pages
Date: 1999-02
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:9903

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